Bombay HC Sends Vodafone TP Case To DRP

Vodafone/Shell Share Valuation ControversyShares issued by the Indian company of the group to the parent company should be issued at an arm’s length valuation under transfer pricing regulations. In case of an undervaluation, there is an income taxable in the hands of the Indian company.

DEVELOPMENTS TODAY: November 29th, 2013

The Bombay High Court has dismissed the writ petition filed by Vodafone and granting a partial relief to the taxpayer remanded the share valuation controversy to the dispute resolution panel (DRP) which was approached simultaneously with the writ petition at the Bombay High Court.

Dismissal of the writ petition indicates that the ‘theory of alternative remedy’ has been adhered to and respected by the Bombay High Court.

The Supreme Court of India has time and again upheld the ‘alternative remedy’ doctrine, as per which where a petitioner seeking any relief under a writ (say asking for quashing of tax notices) has not exhausted all alternative remedies before approaching the High Court, the Hon’ble High Court will ask the relief seeking petitioner to first seek an alternative remedy under applicable statutory laws rather than invoking Article 226 jurisdiction under the Indian Constitution.

The DRP will examine and adjudicate on the issue of applicability of transfer pricing regulations to a simple issue of shares by an Indian company to its foreign parent.

It is understood that the parties will be free to approach the court again (by way of writ) if there is unhappiness with the decision of the DRP. The normal course after the DRP is the Income-tax appellate tribunal.

The Bombay HC may separately issue directions in the Shell company case with similar case which was also heard along with the Vodafone matter. It is expected that similar remanding may take place.

It is unclear at this stage if the taxpayer will approach the Supreme Court against this ‘partial relief’.

‘Partial relief’ because while it has been observed that Vodafone has cause to feel harassed by the tax authorities’ remanding of the matter to DRP with no decision on merits will keep the sword of uncertainty hanging on the two taxpayers and several others waiting in the wings for these two controversies to reach a resolution.